For more articles on hard money
View these articles and more at
“Regulations Bring Change to
to Hard Money Deals,”
“Hard Money Lends a Hand,”
“Making Hard Money Work for Investors,”
May 2014 Ian Walsh is vice president of Hard Money Lenders. He has
been a full-time real estate investor since 2009. He entered
the industry by building WeSellHomes2Fix. From there, he
built a property-management company that was sold in
2015. During his time in the Philadelphia investment market
with Hard Money Bankers, he has underwritten loans in the
Eastern Pennsylvania and South Jersey markets. Reach Walsh
at (215) 839-3271, or firstname.lastname@example.org.
Hard Money Opens
Doors to New Clients
Finding local private lenders can help you
serve the needs of property investors
By Ian Walsh
Hard Money is an interestingstyle of lending that many residential mortgage origina- tors may not be familiar with completely. Some may even associate it with tough
predatory loans that can get your legs broken if you
don’t pay them back. In reality, hard money lenders are
often used in construction and commercial real estate
and are professional and easy to deal with.
In this day and age of strict lending guidelines, residential mortgage originators should become familiar
with how hard money lending works. Not only can hard
money loans sometimes be used as a rescue remedy for
residential loans that fall through the cracks because of
income-verification issues or low credit scores, it also
can be tapped for single-family home construction and
Best of all, because hard money lending is most
often used for short-term “bridge loans,” originators
can refer the hard money loan on the front end and
then close another longer-term loan for the resale or
refinance on the back end.
If you want to begin working with investors, or want
another option available for clients with special lending needs, you first need to find a good hard money
lender to work with. One of the best places to start
looking is in your own backyard. This business is very
much based on numbers, but there are serious benefits
to having someone local finance your clients’ projects.
Having a lender you can meet face to face, instead
of working with one across the country, is important
when things hit a snag. You also want to develop a
relationship with your lender because local lenders
can get a lot more creative in their underwriting.
If your client hits a construction budget issue,
for example, it will be easier to figure out a solution
with a local hard money lender because they operate
more like a mom-and-pop shop rather than a national
lender. Most of the time local lenders also can close
more quickly and with less red tape.
There are some downsides to using a local lender.
One disadvantage, for example, is that they can run
tight on funding at times. National lenders normally
have institutional backing, so often have a lot more
funding. The upsides to using a local lender, however, normally outweigh the drawbacks, compared to
going with a national lender.
Finding a local lender should be fairly easy if you are
already active in the investment scene. Many of them
sponsor local networking events, which offer a great
platform for you to introduce yourself. If you are new
to single-family investing, find a local chapter of the
and search your local area’s real estate investor clubs.
One important question to ask hard money lenders
when you meet with them is: “How are you funded?”
Most people think money is money, so it doesn’t matter,
but it is extremely important to know if you are dealing with a direct lender that has privately raised money.
A lender that is not privately funded most likely is
using institutional, or bank, funding. This is a fancy
way of saying they have “a lot of money that is very
hard to get to.” Institutional funding will normally be
subject to underwriting that is similar to a regular
bank. Each file will be audited carefully, which means
the loan will not close as quickly as it would through a
privately funded lender.
Most fix-and-flippers go to hard money lenders
because they don’t want to be underwritten by a
bank, so it is important to know if you are dealing
with a hard money lender with bank funds or one with
private funds. This information could possibly be the
difference between your lender pulling out on you
and your client the day before closing or everything
sailing through smoothly.
As an originator, you never want to be in the posi-
tion of explaining to a borrower that you can’t close
because of a snag in the financing. Your client will be
mad at you, not at the lender. To avoid this, be sure
to have a strong privately funded lender in every terri-
tory where you originate loans.
If your real estate investor clients are interested in
construction as well, you will want to ask your hard
money lenders if they do construction loans. Also ask
how easily their draws are disbursed during construction.
Many investors focus on the rates of hard money,
which can range from 10 percent to 20 percent per
year. If an investor is paying 1 percent per month on
a loan, but can’t get construction draws until three
to four weeks after each submission, that investor is
carrying the money for an extra month. If that same
investor pays for a slightly more expensive loan, say
1.1 percent per month, but the draws are disbursed
the same week they are ordered, it is actually cheaper
to take the slightly higher rate because the carrying
costs are less.
This is important for originators who want to deliver
good end products to their clients so they keep coming back. All originators understand that when you
hand clients off to lenders that are impossible to deal
with, your borrowers won’t trust your vetting process
and will go elsewhere the next time they need a loan.
Hard money is a great tool for any originator’s tool kit.
Eventually, all serious investors look into hard money
as an option for funding their projects, and mortgage
originators who want to capture part of this market,
need to know who they are dealing with and where
the money comes from. When developing a relationship with a strong local lender to strengthen your
business, look for reasonably priced money that can
adapt and work with you to find creative ways to
finance your clients’ real estate deals. ■